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Challenges in Delivering the Promise

Challenges in Delivering the Promise. Insurance Consumer Affairs Exchange October 4, 2005 Gary Kerney, AIC, RPA Property Claim Services. Catastrophes: Their Impact on Insurers. Presentation Outline The Role of PCS Impact of Recent Hurricanes on Insurers Issues Affecting Claims Handling

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Challenges in Delivering the Promise

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  1. Challenges in Delivering the Promise Insurance Consumer Affairs Exchange October 4, 2005 Gary Kerney, AIC, RPA Property Claim Services

  2. Catastrophes:Their Impact on Insurers • Presentation Outline • The Role of PCS • Impact of Recent Hurricanes on Insurers • Issues Affecting Claims Handling • Expectations of the Recovery Process

  3. PCS Overview • Formation traced back to 1921 • Serves over 1000 primary carriers and reinsurers globally • Industry’s source for insured catastrophe loss information • Extensive staff expertise

  4. PCS Overview • Catastrophe Definition • An event causing $25 million or more of insured property damage and affecting a significant number of policyholders and insurers

  5. Catastrophe Estimating • Preliminary Estimate – 7 to 10 Days • Resurvey Estimate • If preliminary estimate is over $250 Million • Or, unusual circumstances warrant close monitoring • PCS resurveys and reports every 60 days • Final Estimate • No new claims, most closed, confidence in reserves • PCS always uses the term “Estimate”

  6. Property Claim ServicesEstimate Confirmation • 1989 - Hurricane Hugo • SC = $2.66 Billion vs. PCS = $2.55 Billion • Difference of 4.3% • 1991 - Loma Prieta Earthquake • CA = $902 Million vs. PCS = $960 Million • Difference of 6.5% • 1992 - Hurricane Andrew • FL = $15.018 Billion vs. PCS = $15 Billion • Difference of .1% • 1994 - Northridge Earthquake • CA = $12.3 Billion vs. PCS = $12.5 Billion • Difference of 1.6%

  7. Florida OIR $21.2 billion 1.6 million claims $21.2 B - $1.7 for deductibles - $1.0 for LAE $18.5 billion total PCS $19.0 billion 1.645 claims (+3%) Estimate DistinctionsFlorida Hurricanes

  8. 2004 Catastrophe Loss

  9. Were the hurricanes as bad as it can get for claims? • Request to AIR to model the 1938 Hurricane • Parameters well defined • Impact Verified across 13 states from Virginia to Maine • Total number of risks – 41.2 million • Estimated loss at $25 billion

  10. This could be the worst scenario!

  11. New View from Cat Models • The use of catastrophe models is changing • Dollar Loss • Number of Claims • Frequency – not just severity • And not only frequency of hurricanes but events occurring in sequence, e.g. hurricane and earthquake (Hugo and Loma Prieta, Andrew and Iniki, Northridge and six winter storms.

  12. Hurricane Impact • 2004 • Charley $7.5 Billion • Gaston $65 Million • Frances $4.6 Billion • Ivan $7.1 Billion • Jeanne $3.7 Billion • 2005 • Dennis $1.1 Billion • Katrina • Ophelia • Rita

  13. Hurricane Impact • Since 1949: • 1,439 Catastrophe Events • Cost Insurers $201.3 Billion (nominal) • 81 Hurricanes (5%) • Cost Insurers $64.2 Billion (nominal) • Or, 1/3 of the insured loss from hurricanes

  14. Issues Affecting Claims Handling • Evacuations in 2004 but not in 2005 • Widespread and long term power outages. • Weeks to restore • Hotel room shortage – largest evacuation ever and many could not go home. • Adjusters need to drive long distances. • My hotel in Jackson, MS • Gas shortage – long lines and long time. • Contractor issues will arise again in 2005.

  15. Issues Affecting Claims Handling • Determine claims as wind v. water • Inspection of properties • Attribute loss to one peril or the other • Lawsuits already filed • Florida - “One good thing – the losses were all in the same place.” • Adjuster assignments in particular. • Customer service. • Reduced overhead. • Improved supervision. • Not in 2005 – NC, FL, AL, MS, LA, TX, TN, GA

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